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I've been thinking about EU all of a sudden

notebook_Adobe_575x375_25September2020
By Jasper Cox
28 Sep 2020

We all know, or at least Notebook has been led to believe, that once someone obtains money, fame or power, suddenly all sorts of people come out of the woodwork looking to be their friend.

There are echoes of that in the public sector bond market, where bankers are desperate to get in the European Commission's good books now that the EU is set to issue vast amounts of bonds as part of one of its recovery response schemes.

This could involve it issuing €200bn of bonds or more per year, for several years. Since 2013, it has only issued €22bn bonds, meaning many public sector debt capital markets bankers would have preferred to entice other organisations' funding teams. But now the Commission is the belle of the ball.

“This programme is so high profile and so important that there’s pressure from very senior figures in all banks to ensure that DCM teams are doing everything they can to get the EC’s mandates,” said a head of syndicate for public sector issuers. “And when the bosses ask, everyone wants to be able to say ‘I’ve spoken to the funding team’.”

Top add spice, the European Commission is playing hard to get... or at least not being particularly responsive, and the funding team actually chose to take annual leave for the month of August. This appears to have riled some bankers.

“There is a lack of willingness to engage from the European Commission’s funding team,” said one. “I don’t think it’s acceptable from what is about to become the largest supranational issuer in Europe.”

To be fair to the EU, it is limited in what it can say to individual banks no matter how desperate the wooing gets so silence is quite possibly the only proper response for now. And the delays at the political level mean there is probably not all that much the funding team could have done in August except chill out and make sure they were fully rested for the funding onslaught, not to mention the deluge of attention from banks solicited and unsolicited to come.

Meanwhile, banks are facing heat over how they may be treating clients that are more susceptible to persuasion, or even coercion, than the EU.

They may be using their lending relationships with companies to push them into handing out bond mandates, the International Organisation of Securities Commissions warned last week. This follows the UK Financial Conduct Authority's remarks about them pressing for equity mandates in April.

An Iosco member (maybe the FCA) worried that "during periods of disruption such as that caused by Covid-19, which have a profound impact on the finances and cash flow of many corporate issuers, banks and lenders… may be acting opportunistically and not treating their clients fairly," according to an Iosco paper.

But Iosco's paper suggested that the concern was not just a problem in exceptional circumstances, such as during the coronavirus crisis.

"This pattern of behaviour is a significant cause for concern since its impacts are not isolated to periods of disruption, causing additional difficulty for corporates already navigating exceptional circumstances, but also more broadly throughout the economic cycle," it said.

It may be difficult to work out where the line is crossed, because banks often offer loans at a lower rate in the hope or expectation they will perform other services for a client.

Elsewhere, Goldman Sachs has given a lot of bankers new job titles.

Michael Marsh and Christina Minnis become co-heads of global credit finance, Simone Verri and Eric Jordan become co-heads of global investment grade capital markets and risk management (IGCMRM), and David Ludwig becomes global head of equity capital markets.

Finally, Stephan Feldgoise and Mark Sorrell become co-heads of global M&A, replacing Michael Carr, Dusty Philip and Gilberto Pozzi. This trio move to take up positions as co-chairs of global M&A, alongside Tim Ingrassia and Gene Sykes.

By Jasper Cox
28 Sep 2020